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Interest Rate Marketization and the Transformation of the Mode of Economic Development in Our Country

Author: LiCheng
Tutor: ZuoJinJu
School: Nankai University
Course: Political Economics
Keywords: interest rate marketization economic development mode economicstructure economic efficiency
CLC: F822.0
Type: PhD thesis
Year: 2012
Downloads: 171
Quote: 0
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Abstract


Now in China, to accelerate transformation of the mode of economicdevelop-menthas become one of our long-term strategy, this strategy includes three levels ofbusiness, industry and national income, includes the optimization of the structure ofthe enterprise elements, industrial structure and the structure of national income. Inthis development mode transformation, along with the perfection of the economicsystem, the soundness of the financial system is in the core position, while the interestrate marketization is an important part of the financial system reform, China’smarket-oriented interest rate reform has made very big progress, but is still in the"dual system".The control of interest rates and continued low interest ratemakeChina’s capital factor prices to be distorted, causing many adverse effects on oureconomy. Therefore, this paper hope to study the relationship between the interestrate marketization and the economic development mode transformationbased on thetheoretical and empirical research, to reveal the interest rate transmission mechanismto economic development, and provide a reference for China’s successful economictransition.First of all, for the problems in China’s interest rate market, on the state of the currentinterest rate analysis, based on the production function, this paper estimatesthe rentalcost and running cost of China’s capital. The evidence shows that the level of interestrates is undervalued, stating such a low interest rate will result in distor-tions of thecapital factor prices. Usingthe experience of other countries for reference, this paperstudies the risk of interest rate reform and considers that the transformation of thebusinessbank is the effective safeguards of the implementation of the interest ratemarketization.Second, based on the theory of the monetary policy transmission mechanism, thispaper studies the role of interest rates in the economic development that by means ofbank spreads and credit, the marketization of interest rates affects the economicsystem at all levels of change. The mechanism of the interest rate market-orientedreform to excess liquidity, economic structure and economicefficiency is theore-tically proved that the interest rate market canalleviate thesituation of excess liqui-dity by means of the change of bank spreads, can balance thereal economy and virtual economy to prevent the economy from excessivefinancializationand can optimize bank credit rationing, increase their financial supportto SMEs and contri-bute to the development of coordination between the formalfinancial and non-formal financial markets.Then,according to the above theoretical analysis, from an empirical point of view, thispaper verifiesthe impact of interest rate changes on the input structure, industrialstructure and the national income structure. In the aspect of elements of the enterpriseinto the structure, after breaking the lower limit of lending rates, downward floatofthe lending rate can reduce the cost of capital for SMEs, which can help improve theefficiency of enterprise innovation, which can help business inputs to the optimizationof the structure; in the aspect of industrial structure, the increase of loan interest rateswill make the banks to increase credit support for high-efficiency industry, which canhelp enhance the industrial efficiency of capital allocation, thereby making continueto upgrade the industrial structure; in the aspect of structure of national income, theincrease of deposit interest rates can correct the distortions of the allocation of re-sources caused by low interest rates, that consumption and capital formation will in-crease, the situation of foreign exchange reserves will be surged to effective control,the situation of internal and external imbalances will be eased, while the increase ofloan interest rates can improve the efficiency of investment. Changes in the structureand efficiency are carried out simultaneously.In the process of structural transfor-mation, along with the improvement of the efficiency of capital allocation, interestrate play dual roleon the efficiency and structure to promote the transformation ofeconomic development pattern.Finally, by the previous theoretical analysis and empirical findings, in the con-text of low interest rates China’s market-oriented interest rate reform direction is thatthe liberalization of deposit interest rate ceiling to make the deposit rate to raise, andthe release of the loan interest rate floor to achieve loans differences of pricing are theproper meanings of the interest rate marketization. This paper also points out that the interest rate marketization is not equal to the hike or cut of interest rates, but containsthe government effective management, banking reform and standardization of thenon-formalfinancial market etc. related financial supporting system improvement.China’s marketization of interest rates can provide an effective micro-foundation tothe smooth and healthy transformation of China’s economic development mode.Around the interest rate reform and economic development mode shift, discus-sing from the perspective of the enterprise, industry and national income is the subjectof this article.On this theme, this article intends to achieve the innovation fromseveral aspects: first,by means of quantitative research of interest rate imbalancethispaper analyzesthe impact of interest rates underestimate on the capital factor pricedistortions; second, drawing on the financial cellars theory, combined with China’seconomic and financial realities, this papershows that the interest rate marketizationcan help funds return to the real economy and is conducive to the optimization of theeconomic structure and the transformation of economic development mode; third,drawing lessons from the theory of credit rationing, combined with thesplit-economic characteristics of China, this paper analyzes the role of the interestrate marketizationin promoting to enhance economic efficiency and accelarate theeconomic development mode shift; Fourth, this paper studies how the interest ratemarketization resolves the dilemma of monetary policy, that the interest rate mar-ketization is conducive to economic growth and reduces inflationary pressures, thusdo favor to the economic development mode shift; Fifth, the proposed direction of themarket-oriented interest rate reform is the improvement of deposit rates and thediferentiation of lending rates, andthe interest rate reform should be complemented bythe improvement of the economic systemat the same time.

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CLC: > Economic > Fiscal, monetary > Currency > China's currency > Principle of policy and its elaborate
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